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A burgeoning and thirsty middle classDistillers like Diageo are successfully expanding in developing markets where economic growth is creating a flourishing middle class. The U.K.-based liquor maker increased net sales growth in emerging markets by 33% from 2010 to 2012. Emerging markets contributed 40% of Diageo's net sales last year. In those markets, net sales grew 15%, and operating profit increased 23% during the same period. By 2015, the company expects half of net sales to come from these markets, a huge jump Diageo will likely make via a number of acquisitions.

Even before this recent United Spirits deal, Diageo has been on an acquisition bender in emerging markets. It slurped up Chinese baijiu producer Shui Jing Fang, Turkish raki maker Mey Icki, and leading Brazilian cachaca brand Ypioca. Those liquors probably don't mean anything to you and me, but they do to those nations' collective 1.6 billion inhabitants.

Doubling down on brown liquorOf Diageo's product portfolio, scotch represents not only the largest percentage of Diageo's net sales, but also one of its biggest growth drivers. Last year, the company's Johnnie Walker brand reported net sales increases of 31%, 12%, and 18%, respectively, in Africa, Latin America and the Caribbean, and Asia Pacific. Clearly, consumers' taste for the brown elixir is growing.

To keep up with demand, Diageo will invest billions of dollars in whiskey production over the next several years. The company sees huge potential in brown liquor, because consumption in emerging nations is much less than in developed ones. Of course, Diageo's rivals know this, too, and competition in the booming brown spirits market is fierce.

Kentucky-based rival Brown-Forman(NYSE:BF-B) believes strong consumer interest in bourbon will continue. Not to be outshone, the company is increasing capacity to meet demand. It recently announced a $35-million expansion plan for its Woodford Reserve Kentucky Bourbon, which experienced record case volume, and grew net sales by 28% globally in fiscal 2013. Since the 1996 launch of Woodford Reserve, the brand has experienced double-digit growth rates annually.

Foolish takeaway Acquisitions come with risks. But they also dovetail nicely with Diageo's strengths, which include developing products, marketing them, and leveraging the company's global distribution infrastructure. If the liquor maker continues its track record of successful integration in lucrative markets, it should bode very well over the long-term for shareholders of the U.K.-based company.

Author

Nicole is a contributing writer for The Motley Fool. She's worked as a financial advisor and planner for over a decade. Nicole holds an MBA from the University of the Pacific and a chemical engineering degree from Purdue University. She welcomes you to follow her on Twitter. Follow @nicoleseghetti